The Arcata City Council will look into forming a budget task force after it was revealed that the city’s reserves will dip below 10 percent in coming years if changes aren’t made.

“We’re finally coming to a place where we’re really going to have to take a hard look at costs,” Finance Director Janet Luzzi said. “Not for 2014-15 because we got the budget pretty much in balance for 14-15, but moving forward, the city will be in a structural deficit if we don’t take actions to remedy that. It was my goal this year to get the city in a place to create the space so we have time to look at the city’s financial picture and make adjustments.”

During three budget study sessions with the council last week, Luzzi said she suggested the council consider implementing a budget task force to review the city’s costs, services and programs, and make recommendations to the council for the 2015-2016 fiscal year to put the city back on solid financial footing.

The group could look into deficit solutions such as increasing fees or taxes and reducing programs, services or personnel, Mayor Mark Wheetley said.

The council has not yet determined how the task force would be set up, or what its exact responsibilities would be, according to city officials.

“The concern for the budget task force is that our finance director is anticipating reserves will gradually start falling,” City Manager Randy Mendosa said. “If we keep going the same route we are for the next fiscal year, we could be as low as nine percent. We’re going to have to make some corrections in order to keep the city out of financial hardship.”

The proposed 2014-2015 fiscal year budget of about $33 million has close to a 13 percent reserve, according to city officials.

“Several years ago, we had looked at maintaining a very high 20 percent reserve balance,” Wheetley said. “We’re down below that this fiscal year, but … we invested quite a bit last year in roads and infrastructure projects.”

The city spent about $1 million on improvements projects to the Valley West Boulevard area, and five miles of roadways throughout the residential areas of town and along the Arcata Plaza were resurfaced.

Mendosa said the outlook is guarded for the 2014-2015 fiscal year, but the economy in Arcata is solid.

“We have sound revenues, but we are not keeping up pace with our costs,” he said. “We’re getting through this year. The budget is balanced, but there are some challenges, and we’ll just take it from there.”

Employee costs, including health care and pensions, and a statewide minimum wage increase to $9 an hour on July 1 will all result in a rise in costs, he said.

“We’re going to find out ways to stretch the dollar as much as possible to provide the services that the community wants and expects,” Mendosa said.

Arcata has also seen less revenue from Measure I, the so-called marijuana grow tax, which assesses a 45 percent tax on residences over the 600 percent baseline, or the energy used to power three average homes. The excessive electricity use tax is yielding $35,000 to $40,000 a month, he said. It is estimated to bring in $400,000 less than the anticipated $1 million.

“It’s not the windfall that we might have thought it was going to be,” Mendosa said. “I think what the data is showing is we do not have as many excessive energy wasters as we did in 2011. I would say that’s a positive thing.”

The city now anticipates paying off the $650,000 implementation fee to PG&E in two years, he said.

Allocations for organizations such as Arcata Main Street and the Humboldt-Del Norte Film Commission are also reduced.